Bangalore University 3rd Sem Business Regulations BR Unit 2

1. Contract
Law
Presented By:
Pratisha

2. Introduction
Indian contract law regulates contract law in India. The
main contract law in India is codified in the Indian
Contract Act 1872 which came into effect on September
1, 1872 and is applicable in the whole country. It governs
entering into contract, execution of contract, and the
effects of breach of contract.

3. Content
– Indian Contract Act, 1872
• Definition of Contract
• Essentials of a valid contract
• Classification of contracts
• Breach of contract
– Indian Sale of Goods Act, 1930
• Definition of contract of sale
• Essentials of contract of sale
• Conditions and warrantees
• Rights and duties of buyer
• Rights of an unpaid seller

4. Indian Contract Act, 1872
The Indian Contract Act, 1872
prescribes the law relating to
contracts in India. The Act was
passed by British India and is based
on the principles of English
Common Law. It is applicable to all
the states of India except the state
of Jammu and Kashmir. It
determines the circumstances in
which promises made by the
parties to a contract shall be legally
binding and the enforcement of
these rights and duties.

5. Terms
– Contract
– Agreement
– Promise
– Proposal
– Legal Obligations

6. Definitions
1) Contract
According to Sir William
Anson, “ A contract is as a
legally binding agreement
made between two or
more persons, by which
rights are acquired by one
or more to act as of
forbearance on the par of
the other or others”.

7. 2) Agreement
According to Section 2(e)
of Indian Contract Act of
1872, agreement is
defined as “Every
promise or every set of
promise, forming the
consideration for each
other is an agreement”.

8. 3) Promise
According to Section 2(b)
as, “When the person to
whom the proposal is
made signifies his assent
there to, the proposal is
said to be accepted. A
proposal when accepted
become a promise”.

9. 4) Proposal
Under Section 2(a), “When
one person signifies to
another his willingness to do
or to abstain from doing
anything, with a view to
obtain the assent of that
other to such act is said to
make the proposal”.

10. 5) Legal Obligations
A legal obligation is a
duty enforceable by law;
i.e. the common
acceptance formed &
communicated, between
two parties must create
legal obligation.

11. Essentials of Valid Contract
1. Pluralities of Parties
2. Offer and Acceptance
3. Legal obligation
4. Lawful consideration
5. Capacity of Parties
6. Free consent
7. Lawful object
8. Certainty of meaning
9. Possibility of Performance
10. Agreement not declared Void or Illegal
11. Legal formalities

12. Types of Contract
The types of contract can be grouped on the basis of
classification under:
– Indian Contract Act and
– English Law.

13. 1) Classification under
English Law
Classification under English Law
Formal Contracts Simple Contracts
Contract of
record
Contract under
seal
-

14. 2) Classification under Indian
Contract Act
Classification under Indian Contract Act
On the basis of
Formation or Mode of
Creation
On the basis of
Validity or
Enforceability
On the basis of Performance
(1) Express Contracts (1) Valid contracts Executed
Contracts
Executory contracts
(2) Implied Contracts (2) Void contracts
-
(1) Unilateral contracts
(3) Quasi Contracts (3) Void agreements (2) Bilateral contracts
-
(4) Voidable
contracts
-
(5) Un-enforceable
contracts
(6) Illegal contracts

15. Formation or Mode of Creation
• Express contracts: Oral
• Implied contracts: Unknown contracts
• Quasi contracts: Unintentional contracts
Validity or Enforceability
• Valid contracts: fulfilling all 11 points
• Void contracts:
• Supervening impossibility (contracts cancels if war occurs)
• Subsequent illegality (contracts after being ban)
• Void agreement: contract with minor department
• Voidable contract: contract can be void at any time because contract is done by
force
• Unenforceable contact: technical issues, like missing of stamps or seals
• Illegal contract: against legal activities like smuggling
Performance
• Executed: Performed
• Executory: yet to perform
• Unilateral: one performed and other is yet to perform
• Bilateral: both are yet to perform

16. Offer or Proposal
According to the Indian Contract Act, Section 2(a) “When
one person signifies to another his willingness to do or to
abstain from doing anything with a view to obtain the
assent of that other to such act is called as proposal”.

17. Types of Offer or Proposal:
1. Express offer
2. Implied offer
3. Specific offer
4. General offer
5. Positive offer
6. Negative offer
7. Definite offer
8. Standing offer
9. Cross offer
10. Counter offer

18. Essentials of Valid offer
– Capable of creating legal relationship
– Offer may be expressed or implied
– Offer must be certain, definite and not vague
– Offer must be communicated to the offeree
– Offer must be made with a view to obtaining the acceptance or assent of the other party
– An offer may be positive or negative
– An offer may be conditional
– An offer should not contain a term the non-compliance of which would amount the
acceptance
– Offer is not mere statement
– Offer must be intentional to do an act
– Offer should not be a cross offer
– Offer through printed contracts

19. Revocation of Offer
– Revocation by communications of notice
– Revocation by lapse of times
– Revocation by non-fulfilment of conditions
– Revocation by the death or insanity of the offeror or
offeree
– Revocation by rejection
– Revocation by failure to accept in the mode prescribed
– Revocation by subsequent illegality

20. Acceptance
According to Section 2(b), of the Indian Contract Act,
acceptance is defined as, “When the person to whom
the proposal is made signifies his assent their to, the
proposal is to be accepted. A proposal when accepted
becomes a promise thus acceptance is the accent or
consent given to proposal”.

21. Essential of Valid acceptance
1. Acceptance for an offer must be absolute or unconditional
2. Acceptance may be expressed or implied
3. Acceptance must be communicated to the offeror
4. Acceptance must be in response to offer
5. Acceptance must be made with in reasonable time
6. Acceptance must be in prescribed manner or reasonable mode
7. Acceptance must be by the offeree
8. Acceptance must be aware of the proposal at the time of the offer
9. Acceptance must be made before the offer lapse or revoked
10. Acceptance cannot be made through silence
11. A mental acceptance is ineffectual
12. Acceptance can be made for the renewal of rejected offers

22. Consideration
According to Calcutta High Court, “Consideration is a
prize of promise or a return or quid-proquo (something
in written), something of value received by the promisee
as inducement of promise”.

23. Essentials of Valid Consideration
1. Consideration must move at the desire of the promisor.
2. Consideration may move from the promisee or any other
person.
3. Consideration may be past, present or future.
4. Consideration need not be adequate to the promise.
5. Consideration must be real and not illusory.
6. Consideration must be lawful.
7. Consideration may be an act, abstinence or promise.
8. Discharging pre-existing obligation is no consideration.

24. Exceptions to rule of Lawful
Consideration
1. Natural love and affection [Section
25(1)]
2. Compensation for services rendered
[Section 25(2)]
3. Time-bared debt. [Section 25(3)]
4. Completed gift
5. Agency [Section 185]
6. Guarantee [Section 127]
7. Remission [Section 63]

25. Capacity of Parties
Person who is competent to contract
Person not capable for contract
Minor Person of unsound mind Disqualified by other law
Idiot Insane/ Lunacy Married Women Insolvent Alien
Enemies
Convict
Drunkard Old Person Professionals Foreign
Sovereigns
Ambassadors Corporations

26. Minor
The Indian Majority Act, 1875, provides the meaning under Section
3 as “A minor is a person who has not completed eighteen years of
age”. However for some reasons the person continued to be minor
up-to his age of 21 years. The following are the two reasons:
1. In case of a minor of whose person or property pr both, a guardian is
appointed by the court
2. The property of the minor is under the superintendence of a court of words.

27. Rules protecting minor under Indian
Contract Act:
1. An agreement with a minor is void-ab-initio
2. Minor can be a promisee or beneficiary
3. No ratification and minor’s agreement cannot be ratified by him on attaining the age
majority
4. No restitution
5. A minor can always plead minority or No Estoppel against a minor
6. Minor’s liability for necessaries
7. Minor need not hold any specific performance except in certain cases
8. Minor cannot be a partner
9. Minor cannot be an insolvent
10. Minor cannot be a surety
11. Minor can be an agent
12. Minor and the position of his parents

28. Free Consent
Free consent is very important and essential
element of the valid contract. It is essential to
the creation of a contract that the parties are
“ad-idem”, i.e. They agree upon the same
thing in the same sense at the same time and
their consent is free and real.

29. For validity of free consent, it should
not be:
1. Coercion Sec. 15
2. Undue-influence Sec. 16
3. Frauds Sec. 17
4. Mis-representation Sec. 18
5. Mistake Sec. 20, 21 and 22

30. Discharge of contract
Agreement
(Sec. 62, 63)
Performance
(Sec. 37, 38)
Impossibility (sec. 56) Lapse
of
time
Breach (sec. 39) Operation of Law
1) Novation
2) Rescission
3) Alteration
4) Remission
5) Wavier
6) Merger
Initial
Impossibility
Subsequent
Impossibility
Actual Anticipatory
(Prior to due
date)
1) Unauthorised
material
alteration
2) Insolvency
3) Merger
4) Death
1) Destructions
of subject
matter
2) Change of
circumstances
3) Death
4) Change of law
5) Declaration of
war
6) Failure of Pre-
condition
1) At a time
2) During
performance

31. Breach of Contract
When any one of the parties refuses to perform his
promise, he is said to have committed a breach of the
contract.

32. Remedies for Breach of contract
1. Filing a suit for damages
i. Ordinary/ General/ Compensatory damages
ii. Special damages
iii. Vindictive/ Exemplary damages
a) Breach of a contract to marry
b) Dishonour of a cheque
iv. Nominal damages
2. Suit for cancellation or recession
3. Suit for specific performance
4. Suit for Quantum Meruit
5. Suit for Injunction
6. Demanding for Restitutions

33. Sales of Goods Act,
1930 1st July
Indian Sale of Goods Act 1930 is a
Mercantile Law. The Sale of Goods Act is
a kind of Indian Contract Act. It came into
existence on 1 July 1930. It is a contract
whereby the seller transfers or agrees to
transfer the property in the goods to the
buyer for price. It is applicable all over
India, except Jammu and Kashmir. The
goods are sold from owner to buyer for a
certain price and at a given period of
time.

34. Definition of Sale
Section 4 defines ‘sale’ as, A contract of sale of goods is a
contract whereby the seller transfers or agrees to
transfer the property in goods to the buyer for a price.

35. Essential of a Contract of Sale
1. Two parties
2. Transferring of ownership
3. Goods (subject matter)
4. Price
5. Sale may be absolute or conditional
6. Essential elements of a valid contract

36. Basic concepts
– “Buyer”
– “Delivery”
– “Sale”
– “Hire”
– “Barter Exchange”
– “Bailment”

37. Difference between Sale and
Agreement to sale
Sale
1. Sale is an executed contract.
Property in the goods passes from
seller to buyer.
2. If goods are destroyed, the loss will
be borne by the buyer even though
they may be in possession of the
seller.
3. A sale gives right to the buyer to
enjoy the goods against the whole
world including the seller.
Agreement to sale
1. It is an Executory contract. Transfer
of property in goods is to take place
at a future date subject to
fulfilment of certain conditions.
2. The loss will be borne by the seller
even though the goods may be in
possession of the buyer.
3. The buyer only can sue the seller
for damages.

38. 4. In case of sale, the buyer can be
sued for price of goods.
5. If buyer becomes insolvent before
payment is made, the seller has
to deliver the goods to the official
receiver unless he has lien on
them.
6. If the seller becomes insolvent
after payment of price, the buyer
can claim the goods from the
official receiver.
7. The seller cannot resale the
goods. In this case, if the
subsequent buyer takes in good
faith and for consideration, he
gets a good title.
4. The buyer can be used only for
damages.
5. Seller may refuse to deliver the
goods to the official receiver.
6. The buyer cannot claim the
goods. He can only claim rateable
dividend for the amount paid by
him.
7. The original buyer may only sue
the seller for damages.

39. Condition and Warranty
As per Sec. 12(2) of the sale of
Goods Act, a condition is a
stipulation essential to the main
purpose of the contract, the
breach of which gives rise to right
to treat the contract as repudiated.
As per Sec. 12(3) of the sale of
Goods Act, a warranty is a
stipulation essential to the main
purpose of the contract, the
breach of which gives rise to a
claim for damages but not to a
right to reject the goods and treat
the contract as repudiated.

40. Rights and Duties of
Buyer
Following are the rights of a buyer:
i. Right to have delivery as per contract
ii. Right to reject the goods
iii. Right to repudiate
iv. Right to notice of insurance
v. Right to examine
vi. Right against the seller for breach of contract

41. VI) Right against the seller for breach
of contract
a. Suit for damages
b. Suit for price
c. Suit for specific performance
d. Suit for breach of warranty
e. Repudiation of contract before due
date
f. Suit for interest

42. Duties of the buyer:
i. Duty to accept the goods and pay for them in exchange for
possession
ii. Duty to apply for delivery
iii. Duty to demand delivery at a reasonable hour.
iv. Duty to accept instalment delivery and pay for it.
v. Duty to take risk of deterioration in the course of transit.
vi. Duty to intimate the seller where he rejects the goods
vii. Duty to take delivery
viii. Duty to pay prices according to the terms of contract.
ix. Duty to pay damages for non acceptance.

43. Unpaid Seller
1. The seller of goods is an “unpaid seller”:
a) When the whole of the price has not been paid or tendered.
b) When a bill of exchange or other negotiable instrument has been received
as conditional payment and the conditions on which it was received has not
been fulfilled by reason of the dishonour of the instrument or otherwise.

44. Rights of an Unpaid seller
In a transaction of sale it is not possible to avoid
credit sales. In credit sales there is a risk of a
debtor not paying the price of the goods even after
the credit period is over. The seller of the goods
therefore must possess some rights which he can
use to secure payment of the price. If the recovery
of the price is not possible due to the reason of
bankruptcy of the buyer, her must have some
other remedies. The Sale of Goods Act has made
elaborate provisions regarding the rights of an
unpaid seller.

45. Thank You...
Reference:
BR (Vision Book House)
IIIrd Sem. BBA
Bangalore University